If the expected benefits exceed the costs, he concludes that the project is worthyâan example of positive analysis. For example, an economist could analyze a proposed subway system in a certain city. They just are opinions based on one's values. We cannot test them since we cannot prove opinions to be true or false. Normative statements are subjective questions of opinion. They may be true or false, but we can test them, at least in principle. Philosophers draw a distinction between positive statements, which describe the world as it is, and normative statements, which describe how the world should be. Rather, it seeks to describe economic behavior as it actually exists. Economists offer several answers to these concerns.įirst, economics is not a form of moral instruction. Instead, the critics argue that people should be taught to care more deeply about others. For some critics of this approach, even if self-interest is an accurate description of how people behave, these behaviors are not moral. The economics approach portrays people as self-interested. Second Objection: People, Firms, and Society Should Not Act This Way For more on this, read about behavioral economics in the chapter on Consumer Choices. Thus, when thinking about the economic actions of groups of people, firms, and society, it is reasonable, as a first approximation, to analyze them with the tools of economic analysis. ![]() Government institutions may work imperfectly and slowly, but in general, a democratic form of government feels pressure from voters and social institutions to make the choices that are most widely preferred by people in that society. Similarly, from an economic point of view, someone who shops for groceries every week has a great deal of practice with how to purchase the combination of goods that will provide that person with utility, even if the shopper does not phrase decisions in terms of a budget constraint. The fact that a good player can throw the ball accurately because of practice and skill, without making a physics calculation, does not mean that the physics calculation is wrong. Someone might argue: âThe scientistâs formula of the bounce-pass requires a far greater knowledge of physics and far more specific information about speeds of movement and weights than the basketball player actually has, so it must be an unrealistic description of how basketball passes actually occur.â This reaction would be wrongheaded. You just pass the ball, and if you are a good player, you will do so with high accuracy. However, when you are playing basketball, you do not perform any of these calculations. A physicist or engineer could work out the correct speed and trajectory for the pass, given the different movements involved and the weight and bounciness of the ball. To appreciate this point, imagine for a moment that you are playing basketball, dribbling to the right, and throwing a bounce-pass to the left to a teammate who is running toward the basket. However, the economics approach can be a useful way to analyze and understand the tradeoffs of economic decisions. Congress contemplate production possibilities frontiers before they vote on the annual budget? The messy ways in which people and societies operate somehow doesnât look much like neat budget constraints or smoothly curving production possibilities frontiers. After all, do you or any of your friends draw a budget constraint and mutter to yourself about maximizing utility before you head to the shopping mall? Do members of the U.S. The economic approach to decision-making seems to require more information than most individuals possess and more careful decision-making than most individuals actually display. Confronting Objections to the Economic ApproachĬonfronting Objections to the Economic Approach Overview. ![]() ![]() ![]() The Production Possibilities Frontier and Social Choices.How Individuals Make Choices Based on Their Budget Constraint.Introduction to Choice in a World of Scarcity.The Use of Mathematics in Principles of EconomicsĬonfronting Objections to the Economic Approach.Exchange Rates and International Capital Flows.The Aggregate Demand/Aggregate Supply Model.The International Trade and Capital Flows.
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